On 1 January 2017, Nicolaidis Ltd purchased two identical new machines at a total cost of $700 000 plus GST. It was estimated that the machines would have a useful life of 10 years and a residual value of $50 000 each. Nicolaidis Ltd uses the straight-line method of depreciation for all of its equipment. The company’s end of reporting period is 31 December.

Required

Record the purchase of the trucks on 1 January 2017.

Record the depreciation expense on the trucks for 2022.

Assume that early in 2023 the company revalued the machines upwards by $80 000 each and assessed that the machines would last 6 more years instead of 4 but that the residual value would be $80 000. Record all journal entries for the trucks in 2023.

Make the necessary entries to record the sale of one of the machines on 31 December 2023. The machine was sold for $200 000 plus GST. (Assume that the two machines had the same carrying amount, which equalled their fair values at this date.)

How much depreciation expense would be recorded on the second machine during 2025 if it were still being used and if its residual value were still $50 000? Why?

Case Study Two:

Tamworth Trading Ltd is a company operating in the retail sector. The beginning inventory of Product EF5089 and information about purchases and sales made during June are shown below.

June

1

Inventory

6100 units

@

$2.20

4

Purchases

4600 units

@

2.25

9

Sales

4100 units

12

Purchases

4100 units

@

2.40

21

Sales

3100 units

24

Sales

2900 units

26

Purchases

3100 units

@

2.50

30

Sales

2600 units

Tamworth Trading Ltd uses the perpetual inventory system, and all purchases and sales are on credit. Selling price is $5 per unit. GST is 10% and is not included in any of the costs and selling prices above. A stocktake on 30 June revealed 5150 units in inventory. Ignore GST.

Required

Using the FIFO method, prepare appropriate purchases and sales journals to record these events.

Prepare an appropriate inventory record for Product EF5089 for June, and post the journals prepared in requirement A above to the appropriate general ledger accounts (assuming that product EF5089 is the only product bought and sold by Tamworth Trading Ltd).

Prepare an income statement for Tamworth Trading Ltd for June.

Case Study Three:

In early July 2019, Masterton Ltd is considering the acquisition of some machinery for $1320000 (GST inclusive) to be used in the manufacture of a new product. The machinery has a useful life of 10 years, during which management plans to produce 500000 units of the new product. The residual value of the machinery is $100000.

The following projections were made in order to select a depreciation method to be used for the machinery.

Year ended 30 June

Units of output

Repairs and maintenance

Profit before depreciation

2020

50000

870000

5350000

2021

45000

60000

340000

2022

55000

90000

355000

2023

58000

95000

360000

2024

60000

100000

380000

In calculating the profit before depreciation, all expenses have been deducted, including the repairs and maintenance expense.

Required

As the accountant for Masterton Ltd, prepare separate depreciation schedules for the machinery for the 5-year period, using the following depreciation methods:

straight-line

diminishing balance

sum-of-years’-digits

units-of-production.

Use the following headings for each schedule: ‘Year ending 30 June’, ‘Annual depreciation expense’, ‘Accumulated depreciation’, ‘Carrying amount at end of year’.

Related Questions

Case Study One: On 1 January 2017, Nicolaidis Ltd purchased two identical new machines at a total cost of $700000 plus GST. It was estimated that the machines would have a useful life of 10 years and...

Case Study One: On 1 January 2017, Nicolaidis Ltd purchased two identical new machines at a total cost of $700000 plus GST. It was estimated that the machines would have a useful life of 10 years and...

Case Study One: On 1 January 2017, Nicolaidis Ltd purchased two identical new machines at a total cost of $700000 plus GST. It was estimated that the machines would have a useful life of 10 years and...

Case Study One: On 1 January 2017, Nicolaidis Ltd purchased two identical new machines at a total cost of $700 000 plus GST. It was estimated that the machines would have a useful life of 10 years and...

Recent Questions in Financial Accounting

Access and review the organization's policies, procedures, and protocols for reviewing and documenting current computing resources and use. - Policies, procedures, and protocols may vary across organizations. These may relate to inventory logs...
Posted
6 days ago

Your group is required to conduct a literature search and select three (3) cyber security case studies that are published between 2014 – 2019. Based on the selected case studies, your group is required to prepare a written report to cover the...
Posted
4 days ago

SAP S/4HANA allows an enterprise to create a consolidated view of all operational and financial data to offer flexible and easy reporting along with automation of processes. It also offers real-time analytics, simulations and forecasting with a great...
Posted
5 days ago

At the beginning of the current golf season, on April 1, 2018, the general ledger of In the Pines Golf Shop showed Cash $4,200; Inventory $19,500; Common Shares $12,000; and Retained Earnings $11,700. In the Pines Golf Shop uses a perpetual inventory...
Posted
5 days ago

Adios Pty Ltd manufactures shower towels for two local football teams in Sydney. The towels are made from fabric with a logo designed by Bayswater Logo design company. The teams are as follows Vida Glow: with black towels and the Vida Glow logo...
Posted
4 days ago

Collect the latest annual report of an ASX listed company for the last 2 financial years. Please read the financial statements (balance sheet, income statement, cash flow statement) and notes attached to financial statements on income tax issues very...
Posted
3 days ago

John has applied and been approved a licence to operate a casino in Melbourne, which later on he named it The Casino East. John has received 10-year licence from Victorian Government to operate the casino. He also received approval for Casino’s...
Posted
4 days ago

Question 1 Mulan Enterprises pays PKR235,200 for equipment that will last five years and have a PKR52,500 salvage value on 1st September 2018. Prepare necessary entries for recording of equipment and adjusting entries of depreciation expense by the...
Posted
3 days ago